Archive for February, 2009
Archived Version of Hitt Presentation on Strategic Management
| Peter Klein |
Here’s an archived version of Mike Hitt’s presentation, “New Theoretical Developments in Strategic Management,” that Mike Sykuta described before. You can also download the slides.
I watched the presentation yesterday and strongly recommend it, particularly the first part, as a good introduction to the resource-based view of the firm and an overview of some of Mike’s recent work on the institutional environment. It was nice of the AEM folks to set this up.
Funding Higher Education
| Dick Langlois |
Inspired by Peter’s post about salaries at private universities, I thought I would write a bit about public universities, notably my own. It was big news in Connecticut this week when Jim Calhoun, our head basketball coach, got nasty with a self-styled activist who attacked him at a post-game press conference. The activist, who had gotten in on a photographer’s press pass, wanted to know how Calhoun could justify his $1.6 million salary at a time of massive state deficits. Calhoun pointed out that, essentially because of him, the basketball program is a big profit maker for the University: it apparently brings in on the order of $12 million and costs about $6 million. The controversy arose because of the less-than-genteel way in which Calhoun made his case, prompting Governor Jodi Rell to issue a rebuke.
It turns out that Calhoun is not only the highest-paid University employee, he is the highest-paid State employee. (See here for a roster of the top state salaries.) The next two on the list are football coach Randy Edsall ($1.38 million) and women’s basketball coach Geno Auriemma ($1.31 million). The next three are physicians at the UConn Health Center — in the same specialties noted in the Chronicle article Peter cites: reproductive medicine, dermatology, and neurosurgery. (Basketball may not be brain surgery, but Calhoun won his 800th career game on Wednesday, and Auriemma’s team is a juggernaut likely headed for another undefeated season and a national championship.) UConn president Mike Hogan is seventh on the list. (There is an old story about the university president who was asked how he felt about making less money than the football coach: “he’s had a better year than I have,” was the answer.) (more…)
Skidelsky on Keynes and Hayek
| Peter Klein |
Keynes biographer Robert Skidelsky delivered the Manhattan Institute’s 2006 Hayek Lecture on Keynes and Hayek. The lecture will be broadcast this Sunday, 1 March 2009, 3:00 EST, on C-Span 2’s Book TV series. It will presumably appear later on C-Span’s YouTube channel. (Thanks to Warren for the pointer.)
Nifty Little Nuggets for Improving Your Impact
| Nicolai Foss |
OK — since we are apparently doing the ligther posts currently (cf. Lasse’s recent post, the Mahoney and Pitelis list, etc.), here’s some potentially useful (?), hands-on advice on how to improve your academic impact.
Academic impact is obviously a multi-dimensional construct. While often measured simply in terms of publications in high-ranking journals, many universities now increasingly look at citation counts (i.e., SSCI numbers). This makes considerable sense. While an uncited paper in, for example, the Academy of Management Journal (and such exist) may have some social value (after all, it does certify the author as a competent researcher), there is no social value in terms of broader knowledge dissemination (and the results thereof). While the US seems to have the lead (in social science) when it comes to letting citation counts matter, the European scene is rapidly changing towards an increasing emphasis on citation figures. After all, these figures can be easily gathered, compared, etc. by research and university bureaucrats, looking for new areas where they can meddle in a low-cost manner.
Here are some simple ideas that may help to increase your citation numbers: (more…)
21 Economic Models Explained
| Lasse Lien |
In celebration of Mahoney and Pitelis’s impressive achievement in strategic management, here is a related classic on economic systems (HT: K. Isrenn):
21 Economic Models Explained
SOCIALISM
You have 2 cows.
You give one to your neighbour.
COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.
FASCISM
You have 2 cows.
The State takes both and sells you some milk.
NAZISM
You have 2 cows.
The State takes both and shoots you.
BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away.
TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.
SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons.
AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead. (more…)
Case Studies and Causal Inference
| Nicolai Foss |
Can case studies — in the extreme: a study of a single case — play any systematic role in causal inference? If so, how? These are the questions posed in a paper by brilliant LSE mathematical sociologist, Peter Abell, forthcoming in the European Sociological Review. The paper is essentially a summary of Abell’s work over more than two decades with building stronger foundations for “qualitative” or “case study” research (a more comprehensive statement can be found in the “A Case for Cases” paper on Abell’s site).
Of course, in the standard statistical interpretation of causal inference, N should be large, and certainly not equal to 1. And most social scientists believe there is no explanation without generalization (an issue discussed at length by Popper, Dray, Collingwood, and others in the philosophy of history as well as by more recent social scientists such as Ragin and Goldthorpe — and James March (here)), so causal inference is predicated on generalization and comparative method. (more…)
Top Earners at Private US Colleges and Universities
| Peter Klein |
Some interesting factoids in this Chronicle of Higher Ed. story on compensation at 600 private US colleges and universities (via Gary Peters):
- Of the 88 employees earning more than $1 million in 2006-07, only 11 were chief executives. Most were coaches or medical school faculty.
- Median salary for full professors with MDs in the clinical sciences: $238,000
- Median salary for full professors in all other disciplines: $122,159
- Highest-paid employee: USC football coach Pete Carroll ($4.4 million)
- Second highest-paid employee: Columbia University dermatologist David Silvers ($4.3-million)
- Highest-paid economist: Columbia’s Henry Levin ($302,053)
- Highest-paid film-studies professor: Wesleyan’s Jeanine Basinger ($250,854)
No information given on marginal revenue products. I imagine Pete Carroll’s is at least $4.4 million. Don’t know about the rest.
See also the graphic below (click to enlarge):
Risk, Uncertainty, and Financial Markets
| Peter Klein |
A quick follow-up to Nicolai’s post on the copula function: See also this item on Gary Gorton’s role in the financial crisis, which includes Warren Buffett’s great line: “Beware of geeks . . . bearing formulas.” And items on Knightian uncertainty here and here.
And there’s this passage from Darren Aronofsky’s cult classic Pi:
Restate my assumptions: One, Mathematics is the language of nature. Two, Everything around us can be represented and understood through numbers. Three: If you graph the numbers of any system, patterns emerge. Therefore, there are patterns everywhere in nature. Evidence: The cycling of disease epidemics;the wax and wane of caribou populations; sun spot cycles; the rise and fall of the Nile. So, what about the stock market? The universe of numbers that represents the global economy. Millions of hands at work, billions of minds. A vast network, screaming with life. An organism. A natural organism. My hypothesis: Within the stock market, there is a pattern as well. . . . Right in front of me . . . hiding behind the numbers. Always has been.
This is before the speaker, the mathematician protagonist Max Cohen, goes literally insane. That’s what quantitative financial modeling can do to you.
Copula Functions and the Current Crisis
| Nicolai Foss |
Forget about effective demand failures, malinvestments caused by expansionary monetary policy, or even political regulation of the US housing market: The true bete noire in the current meltdown is a specific copula function (here is the Wiki on copulas), or more precisely David Li’s application of it to the modeling of default correlation (here). Or, so Wired claims. Writer Felix Salmon is pretty explicit in his condemnation of Li’s approach:
It was a brilliant simplification of an intractable problem. And Li didn’t just radically dumb down the difficulty of working out correlations; he decided not to even bother trying to map and calculate all the nearly infinite relationships between the various loans that made up a pool. What happens when the number of pool members increases or when you mix negative correlations with positive ones? Never mind all that, he said. The only thing that matters is the final correlation number — one clean, simple, all-sufficient figure that sums up everything.
Apparently, major finance academics — like Darrell Duffie — had warned against the application of Li’s work.
I am by no means competent to pass any judgment on Salmon’s story. I merely recommend it as a highly interesting read — and wonder how long it will take before the performativity-in-financial-markets-crowd picks it up. Actually, it may rather support the Felin & Foss argument that false social constructions are eventually weeded out (here).
More on the Evolution of Accounting
| Peter Klein |
For some reason posts dealing with accounting are among our most popular. Perhaps this says something about the Nerd Quotient of the typical O&M reader. Anyway, if you liked the recent post about the evolution of accounting rules, you may enjoy this paper that looks at the problem more systematically.
Accounting is an Evolved Economic Institution
Gregory B. Waymire and Sudipta Basu
We consider accounting from an evolutionary perspective. Accounting encompasses the creation of transactional records, the summarization of records in t-accounts, and the preparation of audited financial statements. Accounting’s history spans at least 10,000 years dating back to the first human settlements in ancient Mesopotamia. Our focus is on the study of accounting history in three ways: providing useful thoughts experiments valuable to researchers interested in the development of modern practices, the use of historical data to test formal hypotheses about the origins of accounting practices, and the development of theories and related empirical evidence that explain accounting based on evolution and ecological rationality. Within this third area, we describe the basis for hypotheses and empirical analyses concerning six issues: (1) the emergence of recordkeeping, (2) the effect of double-entry bookkeeping on the scale and scope of economic organization, (3) the spontaneous emergence of norms of practice in accounting, (4) the impact of law, regulation, and taxation on accounting, (5) the demand for broad principles in evaluating accounting method choices, and (6) the relation between economic crises and major discontinuities in accounting practice.
Slides on “Putting Entrepreneurship into Strategy and Organization”
| Peter Klein |
You’ve read the book. You’ve seen the movie. You attended the seminar. Now download the slides. Or something like that. Anyway, Lasse begged me to post the slides from this morning’s talk at NHH — or maybe he begged me not to post them, I forget which — so here they are. Some of the slides may not make much sense without the animation (and accompanying patter), but sadly the event was not captured on video, where it could have won next year’s Oscar in the “Best Obscure Academic Talk” category.
Relations Between Micro and Macro Levels
| Nicolai Foss |
Levels issues, micro-foundations, methodological individualism and collectivism, etc. have long been O&M favorites (e.g., here, here, here, and here). While the O&M bloggers are card-carrying methodological individualists, we also (like all other economists and management scholars) acknowledge that macro matters, in the sense that it may be meaningful to think of variables placed at macro levels exerting an influence on decisions made at micro variables (as in the Coleman diagram; see here). The question is, what is the nature of this “relation”? (more…)
Signs of Getting Older
| Nicolai Foss |
My hair is thinning, I can still run those 4 kms in 18 mins or less, but no so easily anymore, I find myself reading obituarities — and here are my selected papers, fresh from the press, on Knowledge, Economic Organization, and Property Rights. I take solace in the fact that these are only selected rather than collected papers. (more…)
Why Did the Chicken Cross the Road: Strategic Management Edition
| Peter Klein |
Joe Mahoney and Christos Pitelis have produced their most original, and possibly most enduring, piece of scholarly work, reprinted here by permission:
Why did the chicken cross the road?
“We must first study the chickens in aggregate; once we understand the chicken industry, then we can explain the individual chicken’s conduct.” — Joe Bain
“We must study the potential mobility barriers of a meaningful strategic group of chickens to understand the individual chicken’s conduct.” — Richard Caves
“The reason for the chicken’s behavior is causally ambiguous.” — Richard Rumelt
“The behavior of the chicken is socially embedded.” — Mark Granovetter
“The chicken is merely following its standard operating procedures.” — Richard Cyert and James March
“Walking across the street is a core competence of the chicken.” — Gary Hamel
“Walking across the street is the chicken’s strategic intent.” — C. K. Prahalad
“It is the chicken’s dominant logic.” — Richard Bettis
“It is simply a routine of the chicken.” — Sidney Winter (more…)
Klein Seminar at NHH
| Lasse Lien |
Monday will be a big day at the Norwegian School of Ecomics and Business Administation. P. G. Klein will give a seminar under the title “Putting Entreprenurship Into Organization and Strategy Research.” Not only will he give a seminar, but we shall have the pleasure of his company from Sunday until Wednesday. If Peter’s blogging frequency goes down early next week it will be because he’s having such a good time here, and if it goes up, it will be because he is so inspired by being here.
Top 3 Boundary Implications
| Lasse Lien |
Top 3 lists are popular, the financial crisis is a hot topic, and this is Organizations and Markets. Combine all three and you get my top 3 list of implications of the financial crisis/recession for firm boundaries:
1. Increased horizontal specialization (de-diversification)
2. Increased vertical specialization
3. Increased concentration (increased size)
Is this roughly right? If not, provide us with your own list.
Patent Pools and Innovation
| Dick Langlois |
In a (fairly) recent paper, which may soon see the light of day in volume from Cambridge University Press, I argued against Alfred Chandler’s analysis of RCA and the early American consumer electronics industry. In Inventing the Electronic Century (2001) Chandler holds that, by creating capabilities (notably central R&D capabilities), RCA was the fountainhead of innovation in that industry, at least until after World War II. I argue instead that, as a government-created patent pool, RCA in fact retarded innovation in what was actually a fairly modular industry. Recently, I came across a paper by two economists from Stanford called “Do Patent Pools Encourage Innovation? Evidence from the 19th-Century Sewing Machine Industry.” They provide quantitative evidence that an earlier patent pool (also) retarded innovation. Here is the abstract:
Regulators favor patent pools to encourage innovation in industries where overlapping patents and excessive litigation suppress innovation. With patent pools, member firms share patents freely with each other and offer one-stop licenses to outside firms. Thus patent pools are expected to promote innovation by reducing litigation risks for pool members and lowering transaction costs for outside firms. We examine this prediction at the example of the first patent pool in U.S. history, the Sewing Machine Combination (1856-1877). Our data confirm that pools reduce litigation risks for members and that pool members patent more in the years leading up to the pool. Pool members, however, patent less as soon as the pool is established and only resume patenting after the pool dissolves. We construct objective measures of performance to examine whether such changes reflect changes in strategic patenting or actual effects on innovation. Performance data suggest that innovation slowed as soon as the pool had been established and resumed only after the pool had been dissolved. Why might patent pools discourage innovation? Our data indicate that pools may discourage innovation by increasing litigation risks for outside firms and by diverting research by outside firms to inferior technologies.
This last point also held true in the case of RCA: as RCA controlled all of the key patents for the radio and licensed them only en bloc, there was no incentive for outsiders to create new products that would compete with only one or two of RCA’s technologies.
An Obamanable Housing Plan
| Peter Klein |
So, let me get this straight. We’re in a major recession triggered by a collapse in the housing market, itself the inevitable result of government policies, led by Fannie Mae and Freddie Mac, to get the wrong loans to the wrong people so they could buy the wrong houses. The Obama Administration’s remedy is not to let Fannie and Freddie die a long-overdue and merciful death, but to prop them up, to give them additional powers, and to subsidize private mortgage lenders who extend yet more credit to more borrowers who can’t pay it back, thus making what might have been a temporary misallocation of the housing stock into a permanent one. Brilliant!
I am bewildered. But, more than that, I am angry. I can’t count how many news accounts I’ve seen about the poor, struggling homeowners who can’t make the monthly mortgage payment, are about to be foreclosed, and risk losing the family home, yard, white picket fence, and piece of the American Dream. But I haven’t heard one word about the poor, struggling renters, the ones who scrimped and saved and put money away each month towards a down payment, who kept the credit cards paid off, stayed out of trouble, and lived modestly, and thought that maybe, just maybe, the fall in housing prices meant that they, finally, could afford a house — maybe one of those foreclosed units down the street. These people are Bastiat’s unseen. For them, Obama’s housing plan is a giant slap in the face. To hell with the prudent. Party on, profligate! Now that’s what I call moral hazard.
Update: Here it is in pictures (from EconomiPicData via Wayne Marr).
Tribal Ritual Among the Ag-Econ
| Peter Klein |
Henry Bahn and George McDowell’s spin-off of the Leijonhufvud classic. I wonder how many other sub- and sister disciplines have their own versions? Sample:
Almost all tribe members adhere to a fundamental belief system and set of basic tenets called Neoclassic Econ. However, different groups in the tribe, sometimes formalized into castes called “fields,” are more or less strict in their adherence to different parts of these tribal teachings. . . .
One group, the Quant-jocques, thinks the tribe should ascribe to a special language and method of communication and analysis. Others, known as Institoots, think the Quant-jocques are introverts, inclined to want to know more and more about less and less, and thus miss important issues along the way. The Quant-jocques reply that the Institoots have more than their fair share of the “mists” about their work as Agg-econ-ni-mists. One of the revered elders of a related tribe decided to resolve some of the philosophical issues among tribe members about who they were and what they believed by pronouncing that the belief system is simply “what the tribe does.”
Like other academic disciplines, agricultural economics has its share of adjuncts, consultants, and other semi-professorial types:
There are also landless tribe members — some of those perhaps more disposed to vagrancy — scattered throughout the land doing what Ag-econs do. Indeed, one group in the tribe has members who live apart from the Depts and are therefore obliged to do honest work for a living. This group is known by its hard work and industry and are called “industry types” or, in an apparent slight, “nonacademics.” Yet another view of this group is that many of them are akin to wandering minstrels who dash in and out of the protected communities, donning the protective robes of the Depts when it serves them well, and when more is to be gained from singing their minstrel song for more than the honor of the Depts, they sing for the highest bidder.
Also lots of insider references on journals and annual meetings. A related discipline, rural sociology, is described in the classic “Village Idiot” Python sketch.
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